Curing the ‘Bay State Boondoggle’

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It’s us versus them, and normally you want to side with the home team, but when it comes to the so-called “Bay State boondoggle” — the extra hundreds of millions the feds are sending to Massachusetts hospitals — we are, regrettably, in the wrong. Rather than fighting a rear-guard action to justify the unjustifiable, Massachusetts’s pols need to stand up and lead the way to a reformed and more equitable system.

The scam was, no question, wicked clever. Medicare is the federal program that covers health care for those over 65. Under its rules, labor-related payments to urban hospitals have a floor that is equal to wages at a state’s rural hospitals. In the Bay State, it turns out there’s only one such qualified rural hospital: the lovely Nantucket Cottage Hospital, just at the edge of the island’s historic district. Of course, we’re not talking some godforsaken region of Appalachia here, where land is cheap and wages crushingly low. Rather, Nantucket is the playground of the wealthy, and everything is exceptionally expensive (to their credit, islanders do their best to soak the rich in their midst).

The result: 81 Massachusetts hospitals are all benefitting from Nantucket’s exceptionally high costs, receiving something like $250 million to $350 million more a year than they would otherwise. Massachusetts isn’t the only state to profit from this rule; a few others, including California, Arizona, and Connecticut, are helped too, but their gains are relatively small compared to ours. And it might not matter much except for one big problem: Our win means someone loses. Medicare is a fixed pot of money. If we get $250 million more, someone gets $250 million less. In the Nantucket case, that “someone” is much of the rest of the country which, having finally figured out what’s happening, is now mightily incensed.

On Jan. 18, hospital associations representing 19 states released a letter to President Obama demanding a fix, worrying about “reduced funding of more than $3.5 billion over the next 10 years as a direct result of this manipulation of Medicare’s hospital wage index.” A month later, the National Rural Health Association added its voice, saying, “It is an outrage that this blatant manipulation is allowed to continue.” The Senate has already voted to repeal the provision that allows the boondoggle to continue, and it looks as if the House will soon follow suit.

Bay State lawmakers are now in a tizzy, reportedly huddling together in emergency meetings to figure out how to keep the money flowing. The argument is that Massachusetts hospitals are special — “the crown jewels of the American medical system” in the words of Representative Richard Neal — and, of course, they are. But as every parent knows, while all your children may be special, you still have to treat them fairly.

This might just seem an amusing tiff among states but for two deeper problems. One is that the trickery involved feeds into the notion that the new health care law is rigged and flawed: “another Obamacare sweetheart deal,” according to House Ways and Means Chairman David Camp. The upcoming mid-term elections look to be, as they were four years ago, a referendum on national health care. The Bay State boondoggle will doubtless be held up as an example of its failings.

Second, it underscores the flaws of how government pays for health care. In the Nantucket case, the rules were exploited to seemingly pump up all hospitals’ expenses. That illustrates a more general problem: Because we reimburse health care providers for what they spend, the system only encourages them to spend more. And the complexity of such rules is so overwhelming that much of health care today requires specialists to help providers maximize their payments. Little of that has to do with medical quality. Rather — as with the tax code and loopholes — it’s just a matter of figuring out how to game the system.

To that end, some, such as the Massachusetts Hospital Association, are surely right when they argue that one lesson from the boondoggle is that the nation needs a “comprehensive review” of how it funds health care providers. But while we wait for that to happen, the right prescription is to get rid of the boondoggle itself.

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